What is the primary purpose of 'private mortgage insurance' (PMI) from the lender's perspective?
Why To protect the lender from loss if the borrower defaults and the collateral value is insufficient Is Correct
Answer B: To protect the lender from loss if the borrower defaults and the collateral value is insufficient
Exam Tip: Finance
Finance questions often involve calculations. Master the T-bar method, understand the difference between conventional and government-backed loans, and know key ratios like LTV and DTI.
People Also Study
Related Alabama Questions
- What is the primary purpose of discount points on an Alabama mortgage loan?Finance
- Private mortgage insurance (PMI) is typically required in Alabama when the borrower's down payment is less than:Finance
- Which type of mortgage loan is fully guaranteed against loss by the U.S. Department of Veterans Affairs?Finance
- Which type of loan insures the lender against loss and allows borrowers to purchase with as little as 3.5% down with a 580+ credit score?Finance
- The ALTA lender's title insurance policy protects the lender for the life of the loan up to:Escrow & Title
- Which type of title insurance policy protects the lender in an Alabama real estate transaction?Escrow & Title
- An Alabama title insurance policy protects the insured against:Escrow & Title
- A title insurance policy that protects the lender's interest is called a:Escrow & Title
Key Terms to Know
Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Math Concepts
Study This Topic
Practice More Alabama Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free Alabama Quiz →